Market discounts Dell's return as CEO

SAN FRANCISCO (MarketWatch) -- Shares of Dell Inc. closed lower Thursday as initial investor enthusiasm at the return of company founder Michael Dell as CEO gave way to concerns over the personal-computer giant's challenges.

Dell
DELL
shares, which rose as much as 5% earlier in the day, gave up 23 cents to close at $23.80. The company said Wednesday afternoon that Michael Dell will succeed Kevin Rollins, who resigned as CEO and a director. Rollins had replaced Dell as CEO almost three years ago.

Dwayne Cox, a Dell spokesman, declined to elaborate on Dell's return to full-time duty and Rollins's resignation. In a statement, former Sen. Sam Nunn, presiding director of Dell's board, said Michael Dell's "vision and leadership are critical to building Dell's leadership in the technology industry."

The move comes after Michael Dell, who founded his company in a University of Texas dorm room, watched it lose much of its luster in the computer market and on Wall Street over the past three years.

Dell is dealing with a lagging stock price and increased competition, including market-share gains by rivals such as Hewlett-Packard Co.
HPQ, -1.55%

Some Wall Street analysts liked the move. Merrill Lynch's Richard Gardner lifted his rating to buy from neutral, citing indications of a new level of commitment to serious change at the company.

J.P. Morgan's Bill Shope raised his rating on Dell's
DELL
stock to neutral from underweight, saying Dell's return mitigates some of the risk of owning the shares.

However, Brent Bracelin of Pacific Crest Securities said that even though Michael Dell might be the leader the PC maker needs, "I don't see any short-term bullets that can magically fix Dell. Michael Dell is an entrepreneur and the company founder. He's coming back to run a $57 billion company that is very different than what it used to be."

Many observers see Dell facing trouble in its key market. Dell said as much Wednesday, when it estimated that fiscal fourth-quarter earnings and revenue would fall below analysts' estimates of 32 cents a share on $15.3 billion in revenue.

In the view of many familiar with Dell, the leadership Michael Dell brings back remains based largely on what the company has touted as its "direct model" of building computers to fit the individual needs of customers.

Still, replacing a chief executive, even with someone as synonymous with a company as Michael Dell, is seen as a risky move.

"It just goes to show us that to investors, a person [the CEO] matters more than the bad news," said Bob Djurdjevic, president of Annex Research.

Rollins vs. the numbers

With $1,000, Michael Dell founded Dell in his college dorm room in 1984 and began building PCs. In 20 years, Dell had passed H-P and International Business Machines Corp.
IBM, +0.30%
to become the world's top maker of PCs in terms of revenue and shipments.

When Rollins took over in 2004, the move was seen as something natural for a company in Dell's position.

Rollins, who had been Dell's president and chief operating officer, and a company employee since 1997, seemed an ideal person to take over the day-to-day business and push it forward.

But during his nearly three years at the helm, Dell and Rollins fell out of favor with Wall Street. The stock is down 31% since Rollins came on the job. By comparison, H-P shares have more than doubled, IBM's are up 18% and the Nasdaq Composite Index
$COMPQ
of which Dell is a member, has climbed 31%.

The company also missed analysts' quarterly earnings and revenue estimates on several occasions, and sales grew at rates barely equal to the overall PC industry.

Dell also lost its hold on the No. 1 spot in the worldwide PC market, falling behind H-P in the fourth quarter of 2006. According to technology-research firm Gartner Inc.
IT, +0.02%
H-P shipped 11.7 million PCs during the quarter, a 24% increase over the same period in 2005, and claimed 17.4% of the market.

By contrast, Dell saw its fourth-quarter shipments fall 8.7%, to 9.4 million units -- good enough for a 13.9% market share.

Meanwhile, H-P has been on a roll. The company dropped a bombshell in March 2005, when it named former NCR Corp.
NCR, -0.07%
chief Mark Hurd to take over from the fired Carly Fiorina. And the fortunes of the rivals couldn't have diverged more.

Since Hurd took over at H-P, the company's annual revenue has risen 15% to $91.7 billion for its 2006 fiscal year. Earnings per share have more than doubled to $2.38 from $1.15.

However, Rollins took over Dell just after it posted annual revenue of $41.4 billion, and analysts estimate that its sales will reach $58 billion when it delivers its next results, scheduled for March 1. Its earnings per share have barely nudged from $1.01 a share to an anticipated $1.17 a share.

Replacing Rollins with Dell is the second major executive change at Dell in a month. On Dec. 19, Dell named board member and former AMR Corp.
AMR, -6.74%
Chief Executive Donald Carty as its chief financial officer, taking over for Jim Schneider, who left Dell to become executive chairman of Frontier Bancshares Inc.

Bracelin of Pacific Crest said the double shot of executive departures says that a lot needs to be fixed at Dell.

"No matter how you spin it, the departure of two senior executives so quickly is going to be viewed as a negative," according to the analyst.

Intraday Data provided by SIX Financial Information and subject to terms of use.
Historical and current end-of-day data provided by SIX Financial Information. Intraday data
delayed per exchange requirements. S&P/Dow Jones Indices (SM) from Dow Jones & Company, Inc.
All quotes are in local exchange time. Real time last sale data provided by NASDAQ. More
information on NASDAQ traded symbols and their current financial status. Intraday
data delayed 15 minutes for Nasdaq, and 20 minutes for other exchanges. S&P/Dow Jones Indices (SM)
from Dow Jones & Company, Inc. SEHK intraday data is provided by SIX Financial Information and is
at least 60-minutes delayed. All quotes are in local exchange time.